Thursday 8 May 2014

StarHub Ltd

OCBC on 8 May 2014

StarHub Ltd posted 1Q14 revenue of S$571.4m, down 1.5% YoY and 6.9% QoQ, meeting just 23.5% of our full-year forecast; net profit fell 7.7% YoY (+0.6% QoQ) to S$84.2m, or 22.4% of our FY14 estimate. StarHub declared a quarterly dividend of S$0.05/share as guided. Going forward, StarHub has kept its previous guidance for FY14, and continues to see intense competition in the Broadband segment; also seeing erosion in its voice and SMS usage in its main Mobile business. For now, we opt to keep our estimates unchanged for now; but we will be looking to trim them if 2Q14 results show no signs of recovering. Our DCF-based fair value also remains unchanged at S$3.81; and with no likelihood of a special dividend this year, we maintain our SELL rating on the stock.

Uninspiring start to FY14
StarHub Ltd posted 1Q14 revenue of S$571.4m, down 1.5% YoY and 6.9% QoQ, meeting just 23.5% of our full-year forecast; StarHub blamed the drop on lower service revenue (mainly due to intense competition in its Broadband business, where revenue tumbled 13.6% YoY and 4.3% QoQ) and lower equipment sales (down 15.9% YoY and 44.7% QoQ on fewer handsets sold). We also note that mobile revenue saw a muted 1.3% YoY rise (but slipped 1.5% QoQ); and as StarHub declined to break down the mobile revenue into pre-paid and post-paid revenue, we estimate that pre-paid revenue probably slipped as much as 11.7% YoY and -1.7% QoQ, while post-paid rose just 1% YoY but fell 4.9% QoQ. Net profit fell 7.7% YoY (+0.6% QoQ) to S$84.2m, or 22.4% of our FY14 estimate; this as tax increased 15.7% YoY and 21.6% QoQ to S$21.4m, but management expects it to “normalize” over the next few quarters. StarHub declared a quarterly dividend of S$0.05/share as guided. 

No change to FY14 guidance 
As before, StarHub continues to guide for single-digit growth in service revenue. And despite achieving a service EBITDA margin of 32.6% in 1Q14, management has kept its service EBITDA margin guidance at 32%, possibly due to the still-intense competition in the broadband space; this as it expects to see further pricing pressure to weigh on ARPUs. Management believes that its fixed network business should still gain more traction, although it did see lower voice revenue in 1Q14. Last but not least, it has kept its capex spending guidance around 13% of total revenue; also kept its annual cash dividend of S$0.20/share, or S$0.05/quarter.

Maintain SELL and S$3.81 FV
For now, we opt to keep our estimates unchanged for now; but we will be looking to trim them if 2Q14 results show no signs of recovering. Our DCF-based fair value also remains unchanged at S$3.81; and with no likelihood of a special dividend this year, we maintain our SELL rating on the stock.

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